Wednesday, January 15, 2025

Brussels Edition: Battered Germany braces for bumpy year

The hits just keep on coming for Germany. Its economy shrank in 2023, did so again in 2024, and forecasts say it won't grow by much in 2025.
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Welcome to the Brussels Edition, Bloomberg's daily briefing on what matters most in the heart of the European Union.

The hits just keep on coming for Germany. Europe's biggest economy shrank in 2023, again in 2024, and forecasts say it won't grow much in 2025, due to the lingering effects of an energy crisis and weaknesses in the industrial sector and real estate. The stress is hitting domestic companies and their debt, with Germany set to be ranked as its most distressed market for a second year running. Now, with Donald Trump expected to impose sanctions on the export-oriented economy and a frustrated electorate going to the polls on Feb. 23, Germany seems primed to take a more conservative turn. Economic malaise was one of the big factors in the fall of the government of Chancellor Olaf Scholz.

Michal Kubala

Live from Davos | Get the Economics Daily newsletter for full on-the-ground coverage of the World Economic Forum.

What's Happening

Ceasefire Deal | Israel and Hamas agreed to a ceasefire that calls for releasing dozens of hostages and bringing a temporary halt to the war in the Gaza Strip. The agreement involves Israel withdrawing from populated areas of the Gaza Strip and release hundreds of Palestinian prisoners. The ceasefire will start Sunday.

Never NATO | Should he have the opportunity to talk with Donald Trump, Vladimir Putin would demand that Ukraine cuts its military ties with NATO, limit the size of its army and remain politically neutral, we've been told. The requests suggest that Kyiv's bid to join the world's biggest military alliance is top of mind for the Russian leader. 

Elevating Ukraine | Poland will "break the impasse" on Ukraine's EU membership talks, according to Prime Minister Donald Tusk. Speaking alongside Ukraine's Volodymyr Zelenskiy in Warsaw, Tusk said his country will seek to fast-track negotiations while it is at the helm of the bloc's rotating six-month presidency. 

Starving Trolls | Germany's armed forces and defense ministry announced they will stop posting on X except in exceptional cases following Elon Musk's interference in the country's electoral politics. The billionaire has praised the far-right Alternative for Germany in the run-up to the country's snap election.

Under Control | Inflation in the euro-area is under control, European Central Bank Governing Council member Mario Centeno said. "We see inflation clearly converging to values probably even slightly below 2%," he said in an interview with Portuguese TV channel RTP3 on last night.

Around Europe

Greenland Interest | Donald Trump confirmed his interest in acquiring Greenland for the US, Denmark's Prime Minister Mette Frederiksen said following a 45-minute phone call with the incoming US president yesterday. "There is no doubt that there is great interest in and around Greenland," she said in a TV interview.

Surprise Move | The US's decision to limit Poland's access to AI chips from firms such as Nvidia and Oracle is "incomprehensible," Poland's deputy prime minister said this week. Poland wasn't the only country swept up in the White House effort to keep the chips inside the US. Israel and other EU members will also be affected.

Eastern Promises | At current yield levels, the Eastern European bond market offers too much risk for too little reward, according to the $48 billion investment advisor Brandywine Global Investment Management. Wobbly politics, high energy costs and weaker currencies make alternative bonds from countries like Israel, Egypt or Turkey more attractive. 

Parallel Institutions | With four weeks to go before its election, Kosovo shut down two dozen Serb-run "parallel" institutions operating within its borders, including municipal offices and tax facilities. Pristina described the move as an effort to dismantle "criminal and illegal" structures. But with tensions between the countries already running high, the move risks stirring fresh unrest.

Banker's Oath | In an effort to shore up public trust in the country's financial institutions, Belgian bankers will now have to swear an oath in front of the country's market officials in which they promise to act with honesty and integrity. Read the text of that oath here.

Chart of the Day

Spanish Prime Minister Pedro Sanchez's proposal to put a 100% tax on properties in Spain bought by non-residents from outside the EU was slammed as being an ineffective means of tackling the country's inability to provide affordable housing for its citizens. The plan has yet to confront Spain's fragmented parliament, but critics suggest that the measure may miss its intended targets — British expats — as they might sidestep the tax by obtaining EU citizenship elsewhere or buying beach and retirement homes via a Spanish entity. 

Today's Agenda

All times CET

  • 11:40 a.m. EU Trade Commissioner Maros Sefcovic meets with EU Parliament committee
  • 1 p.m. EU Executive Vice President Teresa Ribera participates in Bruegel event on clean industrial deal
  • 2:30 p.m. EU Sanctions Envoy David O'Sullivan participates in European Policy Centre event
  • EU Mediterranean Commissioner Dubravka Šuica and European Parliament President Roberta Metsola meet Palestinian Prime Minister Mohammad Mustafa
  • 5:30 p.m. NATO Military Committee Chair Rob Bauer holds press conference after NATO defense chiefs meeting in Brussels

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